Starting a business, incorporating your company or operating as a sole proprietorship can be exciting but also comes with its fair share of challenges. From the moment you’re ready to open your business for the first time until you file your annual tax return, there are a lot of things you need to keep track of. For example, from keeping records and documents organized to understanding how different business expenses are treated under tax law, there are a lot of details that need to be taken care of throughout the year in order to make sure your business runs smoothly and efficiently. Read on for some helpful advice on how you can get your business ready for tax season.
One of the most important aspects of tax season is staying organized. From keeping your documents organized to filing electronically, making sure that you have everything you need to file correctly will help avoid having to pay penalties or interest.
Know Which Tax Forms You’ll Need to File
Starting a business is exciting. But it can also be complicated. Before you even think about opening your doors to the public, there are a lot of things you’ll need to take care of. One of the first things you’ll need to do is file the correct forms with both federal and state tax agencies. The IRS, for example, has 10 different forms that must be filed in order to open your company. This includes annual and quarterly information returns, as well as liability reserve statements, but it doesn’t stop there. You will also have to file at least one other form in order to stay compliant with federal regulations on how much your business pays in wages and how much it pays out in deductions for contributions to retirement plans or health savings accounts (HSA). To help you get started on filing these forms correctly, we have provided some helpful tips and guidelines below.
Hire An Accountant Or Bookkeeper
This is a topic that many business owners struggle with. Finding the time to do bookkeeping on top of running your business can be tough. However, hiring an accountant or bookkeeper will save you time in the long run. The professional will take care of all the accounting for your company and make sure it’s done correctly. This includes keeping track of all incoming and outgoing money as well as filling out all necessary tax documents and filings on your behalf. There are lots of services around but one of the most popular and reliable is Lessaccounting.com.
Understand What’s TREATED as a Business Expense
The first step in tax planning is understanding what’s considered a business expense. It’s important to note that expenses are handled differently depending on whether you incorporate or operate as a sole proprietorship. For example, if you operate as a sole proprietorship, all business-related expenses are treated as personal expenses. You can deduct these costs on your personal income taxes because they were incurred for the operation of your independent business. On the other hand, if you incorporate and register your company with the state, every dollar that is spent on operating your business is considered a business expense and qualifies for a deduction. This means that with an incorporated company, you can deduct wages, rent, tools and equipment required for your activities as well as advertising costs. However, there are some rules you need to follow when it comes to calculating the actual deduction amount based on each type of expense. For example, you can only deduct wages paid to employees who are exempt from social security taxes (e.g., self-employed individuals). As such, it’s important to know what’s considered a deductible expense under the law in order to make sure you’re getting the maximum deductions possible.
Don’t Forget About Self-Employment Tax
One of the most important things to remember when having a bookkeeeping professional prepare your tax return is self-employment tax. Self-employment tax, or Social Security and Medicare taxes, is applicable to individuals who are self-employed. If you are a sole proprietor or work as a freelancer, you will need to pay these taxes in addition to your regular income tax. Self-employment taxes are only paid on net earnings after allowable deductions have been made. This means that if you make $50,000 from your business but have a $10,000 taxable expense for business use of home and car, then you only have to pay yourself $40,000. However, there are certain circumstances where self-employment taxes may be deducted from your gross income before taking into account other allowable deductions. For example if you’re not actively engaged in running your business and not working at all for the year (not even one hour) then no self-employment taxes would be due.
Keep Track of Records and Documents
The first and most important thing you need to do is keep track of your records. If you plan on operating as a sole proprietorship, you should keep all of your business-related documents within easy reach. For example, if you plan on opening a retail store, you should keep all sales receipts and inventory records in one place so that they can be easily retrieved when necessary. Whether it’s filing tax returns or taking care of other legal issues such as licensing or incorporating your company, having the right paperwork can make a big difference in how smoothly things go. Another critical aspect of getting your business ready for tax season is keeping good records. From double-checking your invoices to tracking down lost files, it’s important to make sure that everything is documented well because no one wants to pay penalties for missing information at the end of the year. With this in mind, it’s best to start recording the beginning of each month with a list of all the tasks that need to be accomplished by then.
Tax season is a busy time for many small businesses, but if you know what to do and how to do it, there’s no reason to stress out. Stay organized and take the necessary steps to ensure that your business is in good shape for tax season.